The Veblen-Gerschenkron Effect of FDI in Mezzogiorno and East Germany
Centro Studi Luca d'Agliano Development Studies Working Paper No. 164, UC Davis Dept. of Economics Working Paper No. 03-01
49 Pages Posted: 20 Feb 2003
Date Written: January 2003
The presence of foreign multinational enterprises (MNEs) can benefit local economies. In particular, if MNEs are very productive compared to domestic firms, they may promote learning and catch-up of local firms. Such a channel of spillovers from MNEs to local firms is known as the Veblen-Geschenkron effect. Rather than the overall density of MNEs in a region or sector, it is their initial productivity advantage on the local firm to determine the positive effect on domestic productivity growth. We test this hypothesis using firm level data for German and Italian companies during the 90's and we find evidence of a significant and robust Veblen-Gerschenkron effect.
Keywords: Veblen-Gerschenkron, FDI, Spillovers, Productivity
JEL Classification: F23, O47, R11
Suggested Citation: Suggested Citation